Paddy Deighan is a real estate investor, attorney and advocate. This blog is dedicated to providing useful information, tips and guidelines for all of your real estate needs.

Saturday, July 9, 2011

Scary Outlook for Real Estate Agents and Investors in Short Sales..MUST READ

As always, there seems to be good news and bad news for real estate investors. The truly great news is that recent statistics indicate that 37 % of transactions are now completed with investors. This is up from a previous average of 30% (according to NAR). I personally view this as good news since investors are clearly keeping the market alive since they are completing more than one-third of the transactions.
The bad news?? Seems that major lenders are continuing to clamp down on investor deals. Wells Fargo has recently released a new standard approval letter than includes a NINETY DAY restriction on reselling by the investor. Bank of America is thought to be ready to adopt this policy as well. Additionally, many lenders are placing real estate professionals in harm’s way by requiring them to sign an addendum that indicates that they acknowledge a fiduciary duty to the lender to disclose any higher or otherwise better offers during the course of the transaction.
This is legally not supportable because the lender is placing the real estate agent at a litigious risk to their contractual client (this would not be true in the case of a REO listing agent, however). In fulfilling the “fiduciary” duty to the lender that the lender has now created (and without legal consideration to you for this), you are sometimes violating your contractual duty to your client. In fulfilling the “fiduciary” duty to the lender (that legally you do NOT have) you will be causing the investor buyer to walk since their offer will be rejected and the home owner is now in a worse position than they were before (no buyer) and it is because of a the disclosure to the lender of a potentially higher or better offer that may never come to fruition! If you disclose and your client was the buyer, the sale will be rejected and the buyer will have a claim for lost profit against you since your action caused the offer to be rejected and your contractual duty was to the buyer. Whether you are the listing agent, transactional agent or buyer’s agent, the bank wants you to disclose higher or better offers.
I also strenuously object to the description of your new duty to the lender as “fiduciary”. It is not a fiduciary duty. It is my recommendation that you refuse to sign this and state that there has been no legal consideration for this promise; that you cannot execute that provision because it puts you at a litigious risk by potentially violating your contractual duty to your client (regardless of whether the client is a buyer or seller) and that you are not a party to the contract. We all need to stand up to lender intrusion into the market.